Wednesday, November 23, 2011

Between November 29 and December 1 stakeholders associated with the aid industry are gathering in Busan, South Korea, for Fourth High Level Forum on Aid Effectiveness. The summit will review progress made since the last high level forum and make commitments to set new agendas for donor’s involvement in development sector. A group of ‘sherpas’—who are elected representatives of developed and developing countries— is working on commitments to be endorsed at Busan, according to the Organization for Economic Co-operation and Development ( OECD).

The summit is held against the backdrop of the food, fuel, financial and economic crises; concern over aid reduction by donors in the face of the Euro crisis and persistently high unemployment and stagnant growth in the US; increasing role of Southern donors; and climate change concerns. It will determine how over US$160 billion will be spent annually. Importantly, it will dictate how approximately US$1 billion will be spent in Nepal by donors. Hence, for a country whose 26 percent of total annual budget is funded by aid money (both loan and grants), the deliberations and outcomes of this summit are highly significant.

The Busan summit is the fourth in a series that started in 2002 with the First High Level Forum, organized in Rome, which for the first time outlined three principles of aid effectiveness. It was followed by Second High Level Forum in Paris in 2005, which outlined five principles of aid effectiveness. Then Third High Level Forum was organized in Accra in 2008. It accentuated the need to achieve the goals of the second forum and proposed further improvement in the areas of ownership, partnerships and result-oriented activities. The five principles outlined in the Paris Declaration (PD) — ownership, alignment, harmonization, results, and mutual accountability— remain a cornerstone of the evaluation of aid effectiveness.

In order to get a clear picture of what aid has or has not achieved so far with so much assistance, the PD set targets for 13 indicators covering all the five principles. The 2011 Survey on Monitoring the Paris Declaration shows that while at the global level only one out of the 13 targets has been met, there has been ‘considerable progress’ towards meeting the remaining 12 targets. In a way, this shows that the aid industry has failed to meet its own target and has opened up avenues for further criticisms from those who accuse them of inhibiting growth and development in developing countries.

According to a recent country report on monitoring of PD, published by the Ministry of Finance (MoF), the performance on aligning donors’ activities with respect to that of Nepal’s strategies for achieving goals such as poverty reduction, improving institutions and tackling corruption (also referred to as ownership) is well below the target set for 2010 by OECD. This indicates that aid alignment remains a challenge in Nepal. Specifically, technical assistance (over 25 percent of total aid) remains one of the least coordinated activities of donors. No wonder every big or small donor agency is organizing multiple and duplicate conferences and training programs, and publishing reports to just spend the allocated money.

If all technical assistances/capacity building in one sector are to be aligned and coordinated, then a lot of the Kathmandu based donors will find it hard to spend money. Most of their expertise is on technical assistance, which by the way opens up avenues to employ consultants from donor countries themselves. This has created an oversupply of consultants and reports. Usually, hiring certain number of consultants for technical assistance, irrespective of their need, is included as conditionality in assistance packages. The PD infringes on interests and incentives of donor countries, who in principle want to tie up aid to serve interests of their domestic constituencies as well as that of recipient country. At times, the seeming incompatibility of interests and incentives has led to the disinclination of donors to follow the government’s procurement and implementation mechanism, which are aimed at better coordinating aid. In terms of aid predictability, the situation has not improved much as is evident from the wide variation between commitment and disbursement.

In harmonizing aid activities, there has been some improvement in implementing program based approaches but the performance as of now (31 percent) is still short of the OECD target for 2010 (66 percent). Additionally, evaluating the progress in managing for results, the report notes that though the overall framework and procedures to carry out aid activities are already in place, the quality of results-based programming and monitoring is still below expectation. Donors have not fully used the Medium Term Expenditure Framework and the Poverty Monitoring and Analysis System. Note that only 41 percent of total aid inflow is recorded in the budget systems. The government has concluded that donor support is not always “sufficiently consistent and sustained” and they respond more to advocacy activities and less to securing resources to executing the very lessons learned from such activities and capacity building sessions. Furthermore, donors have spread their wings in more sectors in 2009 than they had in 2005, which means that aid fragmentation has in fact increased instead of the goal of decreasing it. Right now the donors lack clear exit strategies to sustain the progress made through technical assistances.

In mutual accountability for development results by both donors and government, there has been some progress but not of the expected level. Sector-wide Approach (SWAp)—which brings together all stakeholders within any sector— in health and education has shown impressive results, but according to the report, there still is not enough interaction between donors and government on matters regarding aid effectiveness. The government is trying to bring in all aid activities under the Foreign Aid Policy (FAP), whose draft is being widely circulated among all stakeholders. However, the policy is still not enacted allegedly due to objections by some donors, who think that FAP as of now, if implemented, will restrict them from fully implementing their own programs under their own guidelines. Moreover, due to the high concentration of donors and their missions (which increased to 341 in 2010 from 262 in 2007), our government officials are becoming more responsive to them rather than to their own citizens.

The Busan summit will take up these issues, formulate new strategies and make commitments drawing lessons from country review reports such as the one prepared by our MoF. The evolving global economic scenario after 2008 means that aligning donors’ domestic interests regarding country ownership, aid alignment and tied-aid will be even more challenging than it were when the PD was crafted. Meanwhile, convincing Southern donors to adhere to the PD principles will face resistance as they are still guided primarily by commercial and foreign policy interests, which are not entirely compatible with the PD. Nepal receives approximately US$ 140 million per year from Southern donors, namely India, China, Kuwait, OPEC Fund, and Saudi Development Fund.

The aid commitment, priorities and strategies of donors, both Development Assistance Committee (DAC) and non-DAC (read as Northern and Southern donors respectively), in Busan will have important implications for development activities in our country. It will primarily determine the course of development interventions before the deadline for achieving the MDGs expires in 2015. By forging a new consensus on development cooperation, the donors have the task of convincing the public that their activities are driven more by the need of the people than by their own self interests.

About

Worked as researcher at SAWTEE; National consultant at Ministry of Commerce & Supplies, Government of Nepal; FAO, UNDP and CIM, GIZ among others; Was Op-Ed Columnist at Republica, December 2008- June 2012

Former Junior Fellow for Trade, Equity & Development program at Carnegie Endowment for International Peace, Washington, D.C. I am interested in trade policy, economic growth, human development and social protection.

I regularly blog on issues related to economic development, trade policy, public policy, and development in the developing countries.

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